Too High a Price for America’s Next Generation TV System

12/05/2017 12:48 pm ETUpdated
Dec 11, 2017

Source: "United States Frequency Allocations," United States Department of Commerce.

On November 16, the FCC granted TV licensees the right to provide what it euphemistically called “the next generation TV broadcast standard.” Although this giveaway of spectrum rights (popularly known as the “public airwaves”) to media plutocrats had substantial benefits for the American public, it also had needlessly high costs.

The Positives

During recent years, the government’s overall and admirable goal has been to transition the TV broadcast band of spectrum (previously known as TV channels 2 to 51) from broadcast to mobile broadband service—the type of service used by smartphones. This transition complements an earlier transition, implemented between 1996 and 2009, from analog to digital TV. The current transition reduces two types of wasted spectrum:

First, the wasted spectrum, often called guard band spectrum, surrounding each channel. For example, currently only 9 of 49 available TV channels are licensed in the average TV market.

Second, the wasted spectrum within each channel. For example, the new standard will allow not only five times as many video signals of the same resolution on the same channel as the previous standard, but also the type of flexible, internet-based communications we have come to demand from our communications devices.

Through its so-called “incentive auction,” completed last spring, the FCC made significant progress reducing wasted guard band spectrum. The auction repacked the broadcast band in such a way that broadcast licensees could keep their licenses while the FCC auctioned tens of billions of dollars’ worth of guard spectrum for mobile broadband service.

Now, through its approval of the next generation TV standard, known as ATSC 3.0, the FCC is empowering TV broadcast licensees to provide a host of new highly demanded consumer services. Without this new standard, a broadcast TV license would soon have become as obsolete as the horse & buggy.

FCC officials and members of Congress have hailed this transition. For example, the FCC chair who championed the incentive auction called it “an amazing success,” and the Congressional committee chair (and former broadcast licensee) overseeing the FCC “a success” that “generated $7 billion for deficit reduction.”

The Negatives

Yes, this transition will be a boon to American consumers and the economy. But that doesn’t mean it wasn’t also wasteful and unfair. Consider this analogy. In the 1990s, the Russian government gave tens of billions of dollars’ worth of public assets, such as oil, to a handful of oligarchs as part of Russia’s transition from a communist to capitalist economy. Obviously, this transition should have occurred without such a giveaway. Similar reasoning should apply to the public airwaves’ transition from broadcast to broadband.

Consider the incentive auction, the most complex and non-intuitive auction ever designed by humankind. Boosters touted its $19.8 billion in receipts, including at least $10 billion for TV licensees. But what exactly did the licensees’ sell? Only 25 of the 2,176 eligible licensees, largely the dregs of TV licensees, sold their licenses. The rest retained their licenses without giving up their existing service rights, including their must-carry rights on cable and satellite TV. As Sinclair Broadcast Group, the largest owner of TV licenses, reported to its investors, “we expect to receive $313 million” but “do not expect any loss of over-the-air coverage or [must-carry] coverage.”

Tightly linked to the incentive auction but implemented on a different schedule is the transition to the next generation TV standard, which greatly increases the amount and flexibility of data licensees can transmit. For example, it allows licensees to provide up to four ultra high-definition (also known as 4K) TV signals , each with four times the resolution of today’s high-definition TV signals.

The FCC could have reduced by half the spectrum currently licensed to each licensee and still given each licensee a huge windfall from this improved technology. Indeed, Britain did something similar when it last transitioned its TV broadcasters to a more advanced TV technology. Instead, U.S. licensees are being given 100% of the windfall—and tax-free.

The government is also paying a minimum of $1.75 billion in tax-free subsidies for broadcasters to upgrade to this next generation TV standard, including 98 of Sinclair’s 173 TV stations. The rationalization is that this subsidy is fair compensation for the government’s forcing licensees to change channels and thus replace their transmission equipment as part of the channel repacking associated with the incentive auction.

Meanwhile, no subsidies will be provided to consumers forced to buy ATSC 3.0 compatible tuners, which are not backward compatible with current tuners. Consumers must also pay broadcasters, including Sinclair, for each new tuner, since broadcasters own ATSC 3.0 patents.

Conclusion

The broadcast band transition to mobile broadband service has included numerous government giveaways to licensees, including their proceeds from auctioning a public asset (unused guard band spectrum), the quintupling of their effective bandwidth (part of the shift from ATSC 1.0 to 3.0), and their tax breaks on this windfall. These multi-billion dollar giveaways to America’s media plutocrats have been grossly unfair to the rest of America.

Unfortunately, like the giveaway of public assets to Russia’s plutocrats, this giveaway is now spilled milk. But the sad story of the excessively high price Americans were forced to pay to modernize their communications infrastructure needs to be told. Perhaps some useful democratic reforms, such as the scoring of government spectrum rights giveaways to private industry, could even come of it.